Won Plummets Further on Fed Rate Hike

  • By Jeong Si-haeng, Shon Jin-seok

    September 23, 2022 09:32

    The Korean won plummeted further on Thursday after the U.S. Federal Reserve hiked the key interest rate by an aggressive 0.75 percentage point for the third time in a row.
    The won plunged by W15.50 against the dollar to close at W1,409.70 after the Fed raised the key rate by 0.75 percent to 3-3.25 percent. Faced with a surge in inflation, the U.S. central bank raised the base rate by half a percentage point in May and by 75 basis points in June, July and September.
    Fed Chairman Jerome Powell said he will "keep at it until the job is done" of reducing inflation to around two percent.
    But U.S. consumer prices have been rising more than eight percent since March. The Fed also raised its forecast on Wednesday to 4.4 percent, hinting at 1.25-percentage-point rate hikes in November and December.
    An electronic board shows the Korean won closing at 1,409.70 against the U.S. dollar at KEB Hana Bank headquarters in Seoul on Thursday. /Yonhap
    The latest hike sent the U.S. key rate to above Korea's base interest rate of 2.5 percent, and analysts expect the won to weaken to W1,450 or even W1,500.
    In order to narrow the gap, the BOK is expected to raise the base interest rate by 0.5 percentage point again, a drastic increase first attempted in July of this year for the first time ever.
    Bank of Korea Governor Rhee Chang-yong admitted he may have to hike interest rates by a bigger margin than he hoped by saying, "The preconditions for a 0.25-percentage-point rate hike have changed considerably."
    That would raise the base rate here to three percent, up 2.25 percentage points in just one year. Rising interest rates have already dealt a huge blow to the economy, especially for young people who borrowed heavily to invest in the stock market.
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